Who are these angels?

November 20 2009 No Commented

Who are these angels?

Wait a minute. Before describing why I think It’s a GREAT Time to be an Angel!, let’s level the playing field. Just what is an angel investor? Wealthy investors have been providing funding and advice to new entrepreneurs for thousands of years. In 1983, Professor Bill Wetzel at the University of New Hampshire recognized the analogy between “Broadway angels” – those who funded new plays in New York City – and “business angels” – those who fund and bring business savvy to new business ventures, hence the term “angel investors” (or business angels in some regions of the world).

According to Professor Rob Wiltbank (reported in Returns from Angels in Groups, November 2007), the typical angel is a college graduate and has been an entrepreneur in multiple startup ventures. Successful exits from those ventures usually created the wealth used to invest as an angel. The median age of angel investors in Wiltbank’s study was just under 60 and these angels have invested (or intend to invest) 10% of their net worth in at least 10 new ventures during their lifetimes.

Unlike venture capitalists who invest pooled funds primarily from endowments (other peoples’ monies); angels invest their own money in startup ventures. While both VCs and angels are dedicated to funding and growing new businesses, the investing profiles of VCs and angels are quite different. VCs tend to invest much more money (on average about $7 million per round in the US) in later stage companies. Each angel, on the other hand, tends to invest smaller sums (typically US$25,000 to $50,000) with other angels in smaller rounds (typically

While some angels scour the research labs for exciting new technology to help commercialize, most angels wait until a new company has identified a product and developed at least a prototype which has been shown to potential customers, before investing. Why? Angels want to talk to those customers to make sure that the product or service is a “must have” for those customers. And, surprising to many, the two key components to angel-fundable startup business plan are (1) the quality of the management team and (2) the scalability of the product. Angels want to be confident that fundable new ventures can grow in valuation to at least $25 million with five years or so.

Bill Payne is the 2010 BNZ University of Auckland Business School Entrepreneur In Residence. www.billpayne.com